Indian Income Tax — 5 Heads and Two Regimes
On this page 5 headings
Start here The government builds roads, power lines and highways. Where does the money come from? Partly from you, through income tax. This page explains how it works, as taught in the lecture.
Important: The lecture was recorded for the financial year 2022–23. Tax rules change every year with the Budget. Learn the lecture’s numbers for the exam, then see the “Tax rules today” box at the end.
What is income tax?
Income tax is a tax on what a person or business earns. The government uses it for things like roads, highways and power.
The lecture’s simple picture:
- The first ₹2.5 lakh of income: no tax.
- Above that: give a small share (like 10%, i.e. ₹10 of every ₹100).
- Above ₹10 lakh (old regime): give 30% (30 paise of every rupee).
The five heads (sources) of income
| # | Head | What it covers | Note from the lecture |
|---|---|---|---|
| 1 | Salaries | Pay from a job | Comes with some tax benefits. Even owners of family companies (about 90% of Indian companies are family-owned) take a salary. As a startup founder, you can also be a salaried employee of your own company. |
| 2 | House property | Income from houses you own | Up to 2 homes can be self-occupied. From the 3rd house, you pay tax as if it were rented out, even if it is locked and empty. |
| 3 | Capital gains | Profit when you sell an asset for more than you paid | E.g. a flat bought at ₹1 crore and sold at ₹1.48 crore; shares; mutual funds |
| 4 | Business or profession | Income from your own work or firm | Doctors, architects, accountants (profession); sole proprietorship or partnership (business) |
| 5 | Other sources | Interest, dividends | Some incomes are tax-free |
Old regime vs new regime (as in the lecture, FY 2022–23)
From FY 2020–21, the government brought in an optional new tax regime (under Section 115BAC): lower rates, but almost no deductions.
| Annual income | Old regime | New regime |
|---|---|---|
| Up to ₹2.5 lakh | Nil | Nil |
| ₹2.5 – 5 lakh | 5% | 5% |
| ₹5 – 7.5 lakh | 20% | 10% |
| ₹7.5 – 10 lakh | 20% | 15% |
| ₹10 – 12.5 lakh | 30% | 20% |
| ₹12.5 – 15 lakh | 30% | 25% |
| Above ₹15 lakh | 30% | 30% |
- In the old regime, senior citizens (60+) pay no tax up to ₹3 lakh, and super seniors (80+) up to ₹5 lakh.
- Old regime = higher rates + deductions. For
example:
- Section 80C: up to ₹1.5 lakh, e.g. ELSS mutual funds (3-year lock-in).
- Section 80D: health insurance.
- Section 80CCD: another ₹50,000 for NPS (National Pension System).
- New regime = lower rates, no such deductions.
Which one should you choose? (the lecture’s rule)
| If you… | Choose |
|---|---|
| Can save about ₹2.5 lakh a year (about ₹20,000 a month) through 80C, NPS, home loan and similar | Old regime |
| Won’t save that much, or plan to move abroad | New regime |
Tax planning is ethical. Tax evasion is unethical. Talk to a tax expert.
Tax rules today (not in the lecture — for real life)
- Since FY 2023–24, the new regime is the default. You must choose the old regime if you want it.
- For FY 2025–26 and FY 2026–27, the new regime slabs are: up to ₹4 lakh nil; ₹4–8 lakh 5%; ₹8–12 lakh 10%; ₹12–16 lakh 15%; ₹16–20 lakh 20%; ₹20–24 lakh 25%; above ₹24 lakh 30%.
- A rebate makes income up to ₹12 lakh tax-free under the new regime. Salaried people also get a ₹75,000 standard deduction.
- A new Income-tax Act, 2025 replaces the 1961 Act, and many section numbers have changed.
- Always check the official website, incometax.gov.in, for the current year.
In one line: Income is taxed under five heads; the old regime has higher rates with deductions, the new regime has lower rates without them, so pick based on how much you save. Exam words: income tax, five heads of income, salaries, house property, capital gains, business or profession, other sources, old regime, new regime, Section 115BAC, Section 80C, ELSS, Section 80D, NPS, tax planning vs tax evasion.